Market Losses and Fee Compression Weigh on AGF’s Q1 Results

There was little in no-moat AGF Management’s AGF.B fiscal first-quarter results that would alter our long-term view of the firm. We maintain our CAD 8.50 per share fair value estimate. Despite a more than 10% drop in the stock price on March 22, we view the shares as being only slightly undervalued.

AGF Management closed out the February quarter with CAD 41.9 billion in assets under management, up 0.3% sequentially but down 0.1% on a year-over-year basis. This was about in line with what we had been expecting given the low- to mid-single-digit declines in the S&P/TSX Composite Index during January and February, even with the high-single-digit gain in the benchmark during December 2022.

By our estimates, AGF Management recorded positive flows during the February quarter, with a reported CAD 221 million of inflows for its retail fund operations augmented by positive flows for its institutional and high-net-worth channels. We expect the firm to generate positive flows during the full year, even with equity and credit markets expected to remain volatile in the near term.

With average AUM (by our calculations) down 2.5% year over year, AGF Management reported a 5.1% decline in management, advisory, and administration fees when compared with first quarter of fiscal 2022 (affected by the 0.1% decline in AUM and a 2.7% decline in the firm’s realization rate).

Total revenue, which includes deferred sales charges, AGF Management’s share of the profits of associates and joint ventures, and fair value adjustments and other income, was down 8.8% year over year. We had expected this year to be a difficult year for the firm from a top-line growth perspective, so this came as no real surprise to us.

Adjusted pretax operating margins of 20.8% were in line with our projections, but we do expect margins to remain in a 15%-20% range over the course of our forecast period as the company continues to scale up its asset management business.